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The French apparently never got the memo that the Internet is a borderless
network where national law can't be effectively applied. Au contraire: on
Monday a Paris court ordered eBay to pay $63 million in damages to units of
the Paris-based luxury goods mammoth LVMH, after agreeing that the site had
facilitated the sale of counterfeit versions of its high-end products,
particularly Louis Vuitton luggage.

The ruling came less than a month after another Paris court ruled that eBay
must pay $30,000 to luxury house Hermès after knockoffs of its chic bags
had been sold on the site. Though all that tilting against Internet
windmills may be happening only in France for now, there are signs those
Paris verdicts will be carefully studied around the globe by other companies
seeking to stem losses in their activity to online transactions.

Monday's ruling supported LVMH claims that eBay had taken insufficient steps
to detect and prevent counterfeits of the group's Louis Vuitton bags from
being auctioned online. In addition to what it called eBay's "culpable
negligence" in that aspect of the case, the court also awarded LVMH brands
Dior, Guerlain, Givenchy and Kenzo nearly $20 million in compensation for
"illicit sale" of genuine perfumes, the legal distribution of which is
limited to authorized outlets. Though applicable only in France for the
moment, both those verdicts could become important precedent for courts
studying similar complaints elsewhere. Luxury goods groups like Tiffany's and Co., for example, have similar cases pending in the U.S. on claims that
counterfeit or unauthorized sales of their products online costs their industry $30 billion annually. Meanwhile, cosmetics giant l'Oréal has also
filed suit against eBay for contested sales of its perfume on the site.

Not surprisingly, eBay immediately lodged an appeal of the Paris ruling. The
San Jose, California-based company argues that it spends $20 million annually on rooting
out counterfeit goods introduced by a tiny minority of the 84 million active
eBay users in 39 countries; that, the company suggests, is proof of its
desire to combat the problem. LVMH, however, says that effort doesn't go far
enough. The luxury conglomerate carried out its own inquiry in 2006 and
found that 90% of the Louis Vuitton and Dior brand goods auctioned on the
site were fakes.

In a post-trial counter-jab at such claims, eBay issued a statement
suggesting such cases by luxury goods groups were less about losses to real
piracy and more about keeping tight control of distribution and prices.
"Today's ruling is about an attempt by LVMH to protect uncompetitive
commercial practices at the expense of consumer choice and the livelihood of
law-abiding sellers that eBay empowers everyday," the eBay statement said.
"We will fight this ruling on their behalf."

The problem eBay faces is that that battle is taking place in France, where
rules pertaining to the Worldwide Web can seem downright provincial. In the
late 1990s, for example, judges began ruling that French Internet service
providers were legally and financially responsible for objectionable content
published by sites they hosted  cases usually lodged by celebrities
angered at finding scantily clad paparazzi photos of themselves posted by
anonymous (and less than affluent) webmasters. And in 2000, Paris courts
ordered Yahoo! to comply with a national law prohibiting the sale of hate
crime memorabilia by blocking French access to all its international sites
auctioning Nazi paraphernalia, most of which were in the U.S.

But if French legal eagles stirred up controversy by taking on the
super-heavyweights of the Internet world, they're likely to have an even
bigger fight on their hands as they try to crack down on the estimated 10
million French internautes who illegally download
copyright-protected music and videos. Last week, the French government
introduced a draft law proposing "graduated responses" to illegal
downloading that culminate in suspended net access (but continued billing by
service providers) and fines of $7,500 per case of continued illicit
activity. The new proposals would replace a current law, which calls for
maximum penalties of nearly $500,000 and three years in prison.
Entertainment groups have denounced the current law as far too draconian to
be enforceable against what they call "mass piracy." But it's not certain
that the new approach will be any more effective in heading off the nearly
universal hunger for a bargain over the Internet.